One company. Acquired with conviction. Compounded for decades.

The search fund concept

Conceived in 1984, the search fund is an investment vehicle in which investors financially support a manager's efforts to locate, acquire, and manage an existing private company. Over 250 search funds have been raised in the US to date, predominantly by recent graduates of Harvard Business School and Stanford Graduate School of Business.

In a search fund model, capital is raised in two distinct rounds. In the first round, funds are invested into the search fund entity (e.g., Rising Venture) to cover operating expenses and allow the principal to draw a modest salary while conducting a professional search to acquire an existing private company. In return, search-fund investors obtain the right, but not the obligation, to invest in the second round — the acquisition round. All funds invested in the first round are automatically converted to securities in the acquired company and stepped up by 50%, structured as a combination of equity and subordinated debt (i.e., for every $1.00 invested in Rising Venture the investor receives $1.50 of securities in the acquired company).

The 2024 Stanford GSB Search Fund Study — covering 681 first-time search funds in the US and Canada formed since 1984 — shows an aggregate IRR of 35.1% and a 4.5x ROI as of December 31, 2023. For search funds that have already exited, IRR rises to 42.9%.

The asset class is also expanding rapidly outside the US: IESE's 2024 study now covers 320 international search funds across 40 countries, and 2023 was a record year for new international fund formation. International aggregate IRR currently sits at 18.1% — but this figure is mechanically depressed by cohort immaturity: 62% of all international acquisitions have happened since 2020 and remain early in the typical four-to-eight-year holding period, ahead of the value realisation that drives search-fund returns. The same pattern was visible in US data fifteen years ago, before exits accumulated.

Search strategy

At a minimum, target companies must possess the following characteristics:

• A niche service business
• The company is in a management transition or has an absentee owner — current owner(s) motivated to sell for personal reasons (retirement) or to do something else
• A privately held company based in Brazil
• At least 3 years of profitable operations
• Revenues between R$ 30M and R$ 100M (US$ 8M – US$ 30M) and EBITDA margin of at least 10%
• Operating in a growing market
• A fragmented industry with no strong consolidator yet emerging

Each company that fulfills the above criteria is evaluated against a specific set of criteria before a decision on the follow-on steps is made. Intermediaries and company owners can reach out here.

What we offer to an acquired business

• Immediate liquidity through our network of investors
• Professional management to take care of business continuity
• A way to transition out of the business while keeping your reputation with customers, suppliers, etc.
• A growth strategy that lets your business thrive over the years following the acquisition
• Flexibility on the deal-side — the current owner can partially remain in the equity if of interest

What we offer to investors

• A successful track record of entrepreneurial endeavors (see the history of Rising Venture and the principal's profile)
• Access to an asset class with outstanding performance
• The ability to take part in an exciting entrepreneurial endeavor — including the decision on which company to acquire — and to support the entrepreneur with pre- and post-acquisition advice
• Access to the biggest economy in LATAM

Investment highlights

Rising Venture represents a compelling investment opportunity for the following reasons.

An extremely well-performing, proven asset class

Proven concept and tested investment vehicle. Search funds have existed since 1984 and have been used by over 680 entrepreneur teams from top business schools to support efforts to locate, acquire, and manage an existing private company. The 2024 Stanford GSB Search Fund Study reports an aggregate IRR of 35.1% (4.5x ROI) across the asset class, rising to 42.9% IRR for funds that have already exited.

SMBs are an underserved acquisition niche. Virtually all closely-held and family-owned businesses will lose their primary owner to death or retirement. Opportunities to acquire lower middle-market businesses are always greater than demand: these businesses typically fall below the parameters of most buyout firms and are often too large for private buyers. Direct sourcing of these opportunities requires a significant time investment that is often not feasible for private equity firms with limited professional staff. As a result, acquisition multiples in the lower middle market are lower than those found upmarket. This scenario, confirmed by the financial-return track record generated by search funds, has led to a strong increase in search-fund activity over the last 25 years.

Local market opportunity

The search fund model is still new in Brazil and will work great here. Brazil — the world's 6th largest economy — has a similar structure in terms of company sizes as the US economy. Similar to the US, there are private equity funds operating which acquire businesses with revenue above R$ 150M (US$ 50M), but there are no institutional financial acquirers for smaller businesses. For individuals, financing an acquisition is even harder than in the US, as access to bank debt and investor capital is more difficult than in the US or Europe, and there is no culture of pursuing this kind of entrepreneurial activity.

The opportunity to buy a business with revenues below R$ 100M and develop it over 4 to 10 years into a business suitable for a private-equity acquirer is therefore an almost completely untapped opportunity in Brazil.

Opportunity for value creation. The principal's experience investing in and building companies in Brazil has convinced him of the opportunity to create value through the purchase and management of a small business. As a first step, the principal anticipates assembling an experienced board of directors and management team who embrace traditional values of discipline, hard work, organisation, teamwork, humbleness and integrity. Second, the principal and management team will work to add rigor to existing business processes and upgrade especially the digital information systems at the acquired company to serve as a foundation for future growth. Finally, the team will look to prudently pursue underexploited growth initiatives organically as well as potentially through select tuck-in acquisitions.

Principal-related highlights

Relevant personal experience. Jan Riehle combines deal experience in Brazil and Europe with five years of top-level management experience as CEO of a leading e-commerce vertical in Brazil. His expertise in leveraging technology to digitize business processes will allow Rising Venture to add a competitive edge to any acquisition target.

Proven fundraising, team-building, and selling experience. Jan Riehle has shown a strong track record of carrying through what he started. As CEO of Itaro, he grew the company to a R$ 25M business, provided work to 50 employees, and survived and thrived against all odds of the local economy through a deep financial crisis. He sold the company to the leading Brazilian tire distributor, Grupo Cantu. Itaro is today Brazil's most successful e-commerce in the tire vertical.